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  4. Dow Has Its Worst Week in a Decade – Market Update

I’m not actually in the office today to write this, but I’ve been visited by the ghost of Market Update Future. The spirit said they were here to show me three things: economic headlines, mortgage rates (with a peek at a Federal Reserve decision) and the movement of the stock market last week.

Cynics will say I’m just writing every day as the reports come out, but I ask you to believe in the special magic of the season and enjoy the ride, whether it comes from a man in a magic sleigh pulled by flying reindeer or the movements of the stock market ticker.

Headline News

Housing Market Index

Home builders continue to have concerns over the future of the housing market as evidenced by the recent movement in this index. In a survey by the National Association of Home Builders, sentiment fell another four points to come in at 56 in December, indicating a more measured level of optimism. The index is down a total of 12 points since November.

Taking a look at the numbers on a deeper level, both current sales and sales expected over the next six months came in at 61. They’re growing much more slowly than when these numbers were at recent highs. Meanwhile, traffic of prospective buyers going through homes is actually shrinking, down two points to come in at 43.

At the regional level, builders aren’t feeling very good about the Northeast where the pulse of the market is down at 37. The good news is all other regions show growth in the market, with the West in front at 65.

Housing Starts

Starts were up 3.2% to 1.256 million on a seasonally-adjusted basis in November. That’s the good news. The bad news is that the gains came from multifamily units and not from the much more important single-family starts number.

Multifamily starts were up 22.4% to 432,000. This number isn’t considered as crucial as single-family starts because it’s more prone to move around month-to-month. On the single-family side, these were down about 4.9% to 824,000.

Overall permits came in at a seasonally-adjusted annualized rate of 1.328 million, up almost 5%. Again, here most of the strength was in the multifamily side of the ledger with these permits increasing 14.8% to 480,000. Single-family starts were only up slightly to 848,000.

In more bad news for the single-family sector, completions fell to 772,000 from 816,000 in October. In contrast, multifamily completions were up to 327,000 from 279,000.

In regional trends, the South and the Northeast did better than the Midwest and West which posted declines on the month.

MBA Mortgage Applications

For the first time in a couple of weeks, mortgage applications were down last week. Applications to buy homes were down 7% while refinancing applications fell 2% for an overall drop of 5.8% on the week.

The decrease in applications occurred despite the average 30-year fixed mortgage rate falling two basis points to 4.94%, in a low not seen since September. Purchase applications still make up 56.5% of overall market activity.

Existing Home Sales

Existing home sales were up 1.9% in November to come in at a seasonally-adjusted annualized rate of 5.32 million. Existing sales are still down 7% on the year.

Breaking this down a bit further, single-family sales were up 1.9% to 4.71 million while sales of condos came in at 610,000, up 1.7%.

The median price for an existing home was $257,700, up 1% on the month and 4.2% on the year. Supply was down 5.9% on the month to 1.74 million. If sales were to continue at the current pace with no additional supply, there would be no more existing homes on the market in 3.9 months. This is the lowest level for this reading since March.

The West was the only region to show a decline in the single digits while all other regions saw single-digit gains.

Jobless Claims

Initial jobless claims were up 8,000 last week to come in at 214,000. The four-week moving average of initial claims was down 2,750 to come in at 222,000.

Continuing claims weren’t very rosy, as these were up 27,000 to come in at 1.688 million while the four-week average is at 1.673 million which is an increase of 6,750 from the prior week and the highest level in three months.

Durable Goods Orders

Durable goods orders were up 0.8% overall in the month of November, which was below consensus estimates. Aircraft orders were up 17.7% in an area that’s prone to wild swings. Because of this, when transportation was taken out, orders were down 0.3%. Finally, core capital goods fell 0.6%.

Digging a little deeper into these numbers, primary metal orders were up 1%, while fabrications and communications equipment posted gains of 0.5% and 0.8%, respectively.

Areas of weakness included machinery orders, which were down 1.7%, and electrical equipment, down 0.7%. Motor vehicle orders fell 0.2%, while computer orders were flat. Unfilled orders were down 0.1%, while shipments were down the same amount.

Gross Domestic Product (GDP)

In the final revision for the third quarter, estimates showed the economy grew at 3.4% versus the prior 3.5% estimate. Consumer spending was also down 0.1% on a seasonally-adjusted annual basis to 3.5%. Prices were up 1.8% on the quarter, up from a previous estimate of 1.7%.

Digging into the components, exports pulled things down by 0.62%, which is a little less than in prior estimates. Unfortunately, an increase in imports took away 1.37%, for a total net export decrease of 1.99%

Meanwhile, business investment held in, growing 2.5% during the quarter. Government purchases grew by 2.6%. Inventories were up $89.8 billion to add 2.33% to overall GDP.

Personal Income and Outlays

Personal incomes were up 0.2% in November and consumers spent double that as the holiday spending season ramped up. Prices were up 0.1% both overall and in core categories. On the year, prices were up 1.8% and 1.9% in key areas.

There was a 0.9% uptick in spending on durable goods. Spending on nondurables was much lower at 0.2%, but that’s blamed on lower gas prices. Meanwhile, services spending increased by 0.4%.

Disposable incomes were up 0.2% as were wages and salaries. People were saving 6% of their income, down 0.1% from the last time this reading was taken.

Consumer Sentiment

Consumer sentiment was up 0.8 points to 98.3 in the final reading of December. There was an increase of almost four points in current conditions to 116.1 in a good sign for holiday spending. However, offsetting this was a dip in expectations of more than a point from November to come in at 87. People are more concerned about the jobs outlook.

Inflation numbers were down 0.1% each. The five-year outlook is at 2.5%, and inflation over the next year is expected to increase by 2.7%.

Mortgage Rates

The Federal Reserve Open Market Committee chose to raise short-term interest rates another 0.25% today. Although there had been some rumblings about them holding off in recent days, the hike was expected by the majority of market participants.

Analysts were paying closer attention to any clues the governors might give regarding the path for interest rates next year. This is one of the meetings at which the Fed releases something known as the dot plot, which is made up of interest rate projections from each Committee participant.

For those looking for spice, this didn’t disappoint. Before this meeting, the last projections showed three interest rate increases for next year. Now, the median opinion among the governors calls for just two increases. In addition, although they always say this, the statement from the governors seemed to put extra emphasis on the fact that they would be paying close attention to economic data as a gauge of strength and direction. Taken together, analysts seem to think this statement shows that the Fed feels it can take a more gradual approach toward rate hikes in the future.

Updated as of December 26, 2018: Before we get into mortgage rates, it should be noted that as of this writing, the federal government is in a limited shutdown. During this time, Quicken Loans will continue to accept FHA, USDA and VA loan applications. Beyond that, here’s a very brief summary of the effects of the shutdown on your mortgage process:

  • Closing dates on some USDA loans will have to be pushed back until after the shutdown. If this impacts you, we’ll be getting in contact. FHA and VA loans are unaffected.
  • We may request additional information from you because certain services utilized to verify the filing of federal taxes are unavailable to us during the shutdown. We appreciate your patience and cooperation.
  • Verbal or written verifications of employment will be unavailable for government employees.
  • If a flood insurance policy is required for your loan, you’ll be unable to purchase it from the National Flood Insurance Program (NFIP). If they wish, those not applying for an FHA loan may get their flood insurance through private carriers.

We’ll keep you informed of the latest updates as they become available. If you have any questions, you can contact our team at (800) 863-4332.

Mortgage rates have been trending lower the last several weeks. Although short-term rates can serve as an indicator of where long-term rates are headed, it’s also in the hands of market participants. The recent downturn in the stock market has made investors put more money into bonds which keeps mortgage rates low. If you’re looking to buy a home or refinance, it remains a good time to lock your rate.

The average rate for a 30-year fixed mortgage with 0.4 points paid in fees was down a single basis point to 4.62%. This is up from 3.94% at the same time a year ago.

Looking at shorter terms, the average rate for a 15-year fixed mortgage was 4.07% with 0.4 points paid. This is unchanged from last week and up from 3.38% last year.

Finally, the average rate on a 5-year treasury-indexed adjustable rate mortgage (ARM) with 0.3 points was down six basis points to come in at 3.98%. This has risen from 3.39% at this time in 2017.

Stock Market

It’s getting to the point where I say this every week, but don’t look at your retirement funds. The stock market wasn’t happy with the Fed’s statement following the interest rate increase and that’s driven the majority of the losses. Worries about a possible imminent government shutdown didn’t help, either. The Dow Jones Industrial Average had its worst week in 10 years.

Our Fantasy Stock League is quickly coming to a close. Although the market as a whole hasn’t really cooperated and shown very many of us satisfying stock gains in this exercise, we hope it’s been fun for you to see how you would do.

The Dow lost 6.87% for the week after falling 414.23 points on the day to close at 22,445.37. Meanwhile, the S&P 500 fell 15.84 points Friday to close at 2,416.58. It was down 7.05% for the week. Finally, the Nasdaq closed at 6,332.99, down 8.36% for the week and 195.41 points on the day.

The Week Ahead

Monday, December 24

The Nasdaq and New York Stock Exchange both close early at 1 p.m. ET and 2 p.m. ET, respectively.

Tuesday, December 25

Quicken Loans will be closed along with banks and the stock and bond markets in observance of Christmas.

Wednesday, December 26

S&P Case-Shiller HPI (9:00 a.m. ET) – The S&P Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S.

Thursday, December 27

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The four-week moving average of new claims smooths out weekly volatility.

FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.

Consumer Confidence (10:00 a.m. ET) – The Conference Board surveys consumers on their feelings about current and future business and employment conditions as well as their future spending plans.

New Home Sales (10:00 a.m. ET) – This report measures the number of newly constructed homes with a committed sale during the month.

Friday, December 28

International Trade in Goods (8:30 a.m. ET) – The Bureau of Economic Analysis has begun breaking out the goods from the remaining international trade numbers to get an idea of import and export estimates for GDP calculations.

Pending Home Sales Index (10:00 a.m. ET) – The National Association of REALTORS® developed the Pending Home Sales Index as a leading indicator of housing activity. Specifically, it’s a leading indicator of existing home sales, not new home sales.

Every piece of important data is crammed into the back half of next week. We’ll have it covered in the next Market Update!

If all of this economic data is getting in the way of your visions of sugar plums, not to worry. We’ve got plenty of home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. If you’re still doing some last-minute wrapping for your big family gathering, here are some paperless gift-wrapping solutions. On behalf of the Quicken Loans Zing Blog, I want to wish you and yours a safe and happy holiday season and a prosperous new year!

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